Market movements and politics influencing investor’s decision
Stock markets in India have traded the week on a lacklustre note, bordering on the negative. An uptick in inflation rates in an environment of stable and slowing growth made investor cautious and discouraged them from taking high long exposure to the markets. However, markets did see a little bit of relief during the week, following an overnight slump in crude oil prices. The slide in global crude oil prices could help India contain inflation, current account and fiscal deficits. India imports about 80% of its crude oil requirement. Brent for September, 2018 had fallen $3.49 a barrel, or 4.63% to settle at $71.84 a barrel during the week, in global commodity markets. Investors adopted a note of caution ahead of the opposition parties no-confidence motion against Prime Minister Narendra Modi's government.
INFLATION CONTINUES TO BE A CONCERN
The annual rate of inflation based on monthly WPI, stood at 5.77% (provisional) for June, 2018 as against a print of 4.43% (provisional) in the previous month and 0.90% in June, 2017. Build up in inflation rate this financial year so far has been 2.49% compared to a build-up rate of -0.44%, in the corresponding period of the previous year. A higher inflation rate in a flat to slowing growth environment can be detrimental for the economy.
GROWTH CONTINUES TO FACE HEADWINDS
Adding to domestic growth concerns, the IMF has cut India's growth forecast by 10 basis points to 7.3% for the current year and by 30 basis points to 7.5% for 2019, citing faster-than-anticipated monetary tightening and higher crude prices. The international body had projected 7.4% and 7.8% growth for 2018 and 2019, respectively in its April, 2018 forecast.
POLITICS TO THE FORE
On the political front, the Lok Sabha debated on Friday July 20, 2018 a no-confidence motion against Prime Minister Narendra Modi's government moved by the opposition. The government has said it is confident of its numbers and that it was looking forward to a debate in which it can showcase its achievements during the first no-trust vote on the floor of Parliament in 15 years.
Foreign institutional investors (FIIs) continue to influence market flow and activity. FIIs have net sold Indian equities worth INR 1519.68 crore since July 16, 2018. Domestic institutional investors continue to be net buyers and have net bought Indian equities worth INR 1350.79 crore, in the same time period.
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